Why your business should take climate change seriously
Climate change is the most important issue facing humanity in the twenty first century and it will change the way in which all of us live and work. As the World’s climate heats up, it will pose enormous risks for businesses, governments and other organisations as well as commercial opportunities for those strategically placed to take advantage of them.
The 2007 IPCC report showed that the three hottest years ever recorded were 1998, 2003 and 2005. In Europe, the 2003 heatwave led to around 30,000 premature deaths, and projections show that 1:500 year events like this will become normal summers by around the middle of the century.
The rate of global warming is increasing and it is predicted that future warming this century will be 3°C above twentieth century levels. This will lead to significant sea level rise, increasing drought in many parts of the world and severe political, social and economic consequences.
As a result, the Association of British Insurers (ABI) suggest that, if present weather trends continue, subsidence claims are set to double in bad years to £1.2bn by 2050. Claims for storm damage are expected to treble to £7.5bn. In a worst-case scenario, inland flood damage from bursting rivers is likely to treble to £4.5bn over the same period, while the bill for damages from coastal flooding will rise from £5bn today to £40bn in the worst years.
Several of the physical risks imposed by climate change are well known and include increases in the severity and frequency of floods and drought. Others, such as slope instability and changing wind regimes, are less obvious but still of importance when planning for future climate change.
However, there are a number of other risks associated with climate change which have tended to be overlooked by business planners, and these include those relating to changes in political, economic, social and regulatory systems. Climate change affects political systems in several ways. In areas such as central Asia, southern and northern Africa, the Middle East and parts of South America the potential exists for future conflict over the control of water resources, and for companies planning to invest in such regions risk assessments should be carried out to investigate the likely political implications of climate change.
Companies should also take account of the economic instability likely to occur during climate change, and this will manifest itself through changes in supply networks, employment and financial indices such as interest rates and currency values. Climate change will increase operating costs for businesses, potentially disrupt commercial activity and reduce the economic life of structures. Further, social instability will affect the ways in which companies can trade, affect their net worth, and in many countries will be reflected in inward and outward migration and social unrest.
Finally, all companies should take regulatory and legal risks into account which need to be factored in during profit and loss accounting. The likely severity of future climate change will force governments to impose severe regulatory costs on all businesses which are deemed to be contributing to the problem. In addition, there are emerging legal risks for companies if they fail to take climate change seriously and the risks of litigation will be increased if the company was seen to have acted culpably. Companies that delay taking action on climate change could be accused of incurring higher costs as a result of unduly delaying emission reductions, damaging a company’s reputation and failing to disclose investment-relevant information, and as a result, risk being sued by investors and other interested parties.
CCRM helps businesses, government and others to understand climate change and plan for it. Please contact us for more information.